Question

If the cost of flour to produce a product increases 3%, then the company will need to charge their consumers more for their products to compensate for the price increase of flour.

What are the opportunities to offset this price increase, maintain gross margin, and offer the product to consumers at the same price currently? Present your calculations in a supporting table included in your paper?

Answer 1

Increase of 3% is not a substantial increase in cost, depending upon what we sell. Lets assume we sell Buiscuits out of flour which cost us $ 1000 per Kilo. The ingredient contains 1kg of Flour of $ 100 which now increases to $ 3. Here, this will surely affect our gross margin by $ 3, but with following measures we can offset this price increase:

• Increase productivity of the manufacturing process
• Use alternative to the flour in producing the buiscuits
• Reduce expenses like frieght to maintain gross margin